Why the Dollar May Perform Surprisingly Well For Small Businesses

It is indeed interesting to observe how fickle the Forex markets can be on occasion. Of course, this is one of their major attractions. Fluctuations and speculation will both combine to contribute to an overall liquid environment; allowing short-term traders to enjoy a healthy income if they predict such movements correctly. The United States dollar has been the focus of many currency traders since the election of Donald Trump. While some predicted a decidedly gloomy scenario, it seems that we have avoided such an eventuality (at least up until this point). Why has the dollar continued to perform well in relation to its international counterparts and what can small businesses expect throughout the remainder of 2017?

America First

This was one of the foremost tenets of the Trump campaign. While some view such a perspective as highly protectionist, the fact of the matter is that “America First” directly equates to prioritising the needs of domestic small businesses. This will naturally have a positive impact upon GDP and if Trump is able to re-negotiate trade deals with major partners, exports could rise. It appears that some analysts have already factored such moves into their overall perspectives; hence the more bullish stance that many are now embracing.

An Oversold Commodity

For lack of a better term, the dollar has been oversold in recent times (1). Much like any product which is oversold, eager investors will be looking to buy back portions at lower rates only to turn a profit in the future. However, why has such a situation occurred? We can list a few key takeaway points to highlight here:

The fear immediately following the Trump victory in 2016.

Many did not predict the immediacy or frequency of interest rate rises.

Loose monetary policies within other developed countries.

Medium-term traders are therefore understandably keen to take advantage of a weaker dollar before the situation reverses itself (which will naturally occur in the future).

Increased Government Spending

This is another policy which has been embraced by the Trump campaign and while massive monetary movements have not yet been seen, many feel that this is the one commitment that he might be able to fulfil. Private sector spending has always represented a traditional stimulus; particularly during times when the economy was seen to have been flagging. Although Obama did a decent job in pulling the United States back from the brink of financial collapse, the fact of the matter is that Trump is businessman at heart. Thus, it is only logical that he would place a massive emphasis upon strengthening the fiscal infrastructure of the country from the ground up.

The Brexit Spectre

The United Kingdom is far from out of the woods as far as the Brexit is concerned. While the ratification of Article 50 was indeed inevitable in retrospect, the fact of the matter is that many Forex investors are still doubting the strength of the pound between now and when the separation finally takes place. Continued uncertainty involving trade agreements between the UK and the EU are placing downward pressure upon this currency and as a result, some are taking a speculative approach and switching their funds over to the dollar. However, this may be a short-lived strategy as opposed to long-term plan. It is still undeniable that the pound has suffered significantly in relation to its Transatlantic counterpart.

The Remainder of 2017

Speculation is still rife. For the sake of this article, we have not taken into account extraneous possibilities such as geopolitical upheavals and even regional conflicts (North Korea is a perfect example in this case). To put this another way, very few are willing to firmly predict where the dollar may be headed. The currency markets have always been fickle and this financial year has proven to be no different.

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